For the coming year, Loudermilk Inc. anticipates fixed costs of $600,000, a unit variable cost of $75, and a unit selling price of $125. The maximum sales within the relevant range are $2,500,000.a.  Construct a cost-volume-profit chart on a sheet of paper. Indicate whether each of the following levels of sales (units or dollars) is in the operating profit area, operating loss area, or at the break-even point.4,800 unitsOperating Loss Area 12,000 unitsOperating Profit Area $1,500,000Operating Profit Area 20,000 unitsOperating Profit Area $2,500,000Operating Profit Area b.  Estimate the break-even sales (dollars) by using the cost-volume-profit chart constructed in part (a).$1,500,000 c.  The graphic format permits the user to visually determine the ?  and the ?  for any given level of ? .

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Asked Mar 7, 2020
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For the coming year, Loudermilk Inc. anticipates fixed costs of $600,000, a unit variable cost of $75, and a unit selling price of $125. The maximum sales within the relevant range are $2,500,000.

a.  Construct a cost-volume-profit chart on a sheet of paper. Indicate whether each of the following levels of sales (units or dollars) is in the operating profit area, operating loss area, or at the break-even point.

4,800 units Operating Loss Area 
12,000 units Operating Profit Area 
$1,500,000 Operating Profit Area 
20,000 units Operating Profit Area 
$2,500,000 Operating Profit Area 

b.  Estimate the break-even sales (dollars) by using the cost-volume-profit chart constructed in part (a).
$1,500,000 

c.  The graphic format permits the user to visually determine the ?  and the ?  for any given level of ? .

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Expert Answer

Step 1

a)  Prepare Break-even chart:

Accounting homework question answer, step 1, image 1

4800 units Operating Loss area
12000 units Break-even point
$1,500,000 Break-even point
20000 units Operating Profit area
$2,500,000 Operating Profit area

 

Step 2

Calculate the break-even sales in dollars:

Selling price per unit $125  
Variable cost per unit $75  
Contribution per unit (A) $50  
Fixed costs (B) $600,000  
     
Break even units (C) = (B) / (A) 12000 Units
Break even sales (D) = (C) x $125 $1,500,000  
...

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